Kentucky Corrects Law That Previously Considered Private Construction Companies “Public Agencies”

December 2012 By C. Michael Shull
onCite Newsletter

Is a private construction company a “public agency”?  Most people would respond in the negative.  However, until April 2012, under Kentucky law, virtually all highway contractors and many vertical builders would be considered “public agencies” under Kentucky’s Open Records law.

Kentucky’s Open Records statute, KRS 61.870 et seq., requires that all public agencies provide the general public with access to their records.  Virtually all states have such laws, either loosely based upon or similar to the federal Freedom of Information Act.  Kentucky’s Open Records law, however, contained several definitions of what constitutes a “public agency”, and one was interpreted in a very damaging way to private construction companies.

Until recently, KRS 61.870(h) defined as a public agency “any body which derives at least twenty-five percent (25%) of its funds expended by it in the Commonwealth of Kentucky from state or local authority funds”.  One could logically conclude that this definition implicated only pseudo-public or civic bodies that receive grants which constitute 25% or more of their total income, particularly since the word “funds” was used instead of “revenue”.  Kentucky courts and the Kentucky Attorney General’s (“AG”) office concluded otherwise, such as in the case of Hardin County v. Valentine, 894 S.W.2d 151 (Ky. App. 1995) and more recently in the matters of 11-ORD-199 (John Rogers/Green Construction Co., Inc., issued November 22, 2011) and 12-ORD-054 (John Rogers/Scotty’s Contracting & Stone, issued March 12, 2012).  Exceptions to the duty of disclosure might exist, as in Valentine, but the contractor was still considered a public agency.

Kentucky law therefore essentially considered the word “funds” to be interchangeable with “revenue” and concluded that any private company which derived 25% or more of its revenue, or income, from a state or local authority was itself a public agency.  As such, highway contractors in Kentucky were therefore considered public agencies, as were builders who constructed primarily schools, courthouses, and other public works projects.  Later opinions of the AG’s office attempted to require only disclosure of financial records showing where the funds received on those public projects was spent by the private company.  However, as a practical matter, separating those records for most contractors was almost impossible, and the detriment to their privacy and financial records remained the same.

Despite this unfortunate interpretation, few open records requests had been sent to Kentucky construction companies until two waves of these requests were sent in late 2011 and early 2012 by a Glasgow attorney and others to many of the state’s larger construction and engineering companies.  Many declined to produce their sensitive financial data, and these denials were appealed to the AG’s office.  No less than 11 opinions by the AG were issued in November and December 2011 on this issue.  Some contractors prevailed, such as in 11-ORD-191 (John Rogers/Abel Construction Company, issued November 15, 2011), citing the fact that they did not derive even 25% of their total revenues from state or local sources.  Many others were declared “public agencies” and ordered by the AG to turn over their records.

Given the potential impact on contractors, local trade groups, led by the Kentucky Association of Highway Contractors and local AGC chapters, proposed a curative amendment to the statute.  House Bill 496, sponsored by Rep. Johnny Bell, D-Glasgow, removed from the definition of “public agency” those companies who received funds by virtue of a contract with a public agency awarded through a competitive process.  HB 496 passed 93-0-1 in the House and 32-3-1 in the Senate, and was signed by Governor Steve Beshear on April 4, 2012.  The amended statute now reads:

h)        Any body which, within any fiscal year, derives at least twenty-five percent (25%) of its funds expended by it in the Commonwealth of Kentucky from state or local authority funds. However, any funds derived from a state or local authority in compensation for goods or services that are provided by a contract obtained through a public competitive procurement process shall not be included in the determination of whether a body is a public agency under this subsection;

The “competitive procurement” language should cover design firms as well as contractors.  Perhaps more importantly, design-build procurement, which the Kentucky Transportation Cabinet appears ready to use more often given its use on Kentucky’s portion of the Ohio River Bridges Project, should also fall under this definition and exemption.  Last, the exemption extends far outside of the construction industry as all private companies who contract with the Commonwealth for goods or services, be it public relations, fuel sales, etc., can now rest easier knowing that they cannot be called forward to produce essentially all of their sensitive, internal financial records to competitors or other entities. 

The public’s interest is of course still protected by virtue of the fact that contracts, payment applications, and other key project documents that are submitted to the Commonwealth would still be public records, as the procuring state agency of course remains a “public agency” under the other definitions found in KRS 61.870, and their own files subject to inspection.  In an otherwise controversial 2012 legislative session in which many pressing issues were not addressed, this one common sense statutory correction should be celebrated. 

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